BUSINESS WILL BENEFIT FROM GREATER CLARITY ON INTEREST RATESMay 15 2014.

Commenting on the Bank of England’s Quarterly Inflation Report, John Longworth, director general of the British Chambers of Commerce (BCC), said: "As the economy continues to recover, low interest rates remain crucial to maintaining business confidence and stoking business investment.

"It is not yet time for the Bank of England to raise interest rates. But the Bank must set out a clear road map for slow and incremental rises in rates, which would help businesses plan a successful transition from an exceptional situation towards a more normal one. Rates will have to rise as the economy grows, but in an orderly and predictable fashion. Big or surprise rate rises would be like a heart attack hitting a patient recovering from major surgery."

David Kern, chief economist at the BCC, added: “Governor Carney and the MPC have done their best to dampen the growing clamour for immediate interest rate rises in the face of difficult circumstances. While there are limits to the information that the Governor can provide, the current situation, where any good news increases speculation over an early interest rate hike, is hampering businesses’ ability to plan future investment. And while the tone of the conference was reassuring, the Bank will have to go further to reassure companies that there will be no surprises.

“Reinforcing business confidence will be the key test of whether the forward guidance policy is a success or failure. While we think that the Bank’s GDP forecasts are on the optimistic side, this should not adversely affect businesses’ view that the MPC will do its best to maintain the recovery. It is also important that any concerns about the housing market will not push the MPC into premature rate rises that could damage the business confidence. Any intervention to cool the housing market, if needed, should be using policy tools other than rate rises.”